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February 29th, 2016

Managing a downturn


Say the word “downturn” and it can send a chill up your spine. It’s a word that spawns fear and breeds indecision. But from the novice to the most fastidious of investors, you can manage your finances and maintain your wealth during an economic slowdown. The key to taking control of expenses is to budget and exercise prudence in your spending. In a downturn, tough decisions need to be about how you manage your money, what you spend it on and what financial priorities come into play. 

Budget, Budget

You needn’t take a vow of penance, but chances are there are ways you can trim your spending. Write down everything you spend each day, for a week. Then total up the categories (food, clothes, entertainment, transportation, etc.) and see how you can squeeze 5 or 10 percent out of those totals. You may have to consider deferring large expenses and adjusting intended extravagant purchases.

Receiving a lumpsum

 Being laid off as well as receiving a lump sum payment in an economic downturn can be very stressful because it means that no regular income will be forthcoming and the lump sum has to be deployed so that it can last as long as possible. However, it’s better to slow down and take some time to develop a financial plan or at least determine your financial options.

Fully understand and prioritize your options, chief among them should be seeking to generate some sort of income from your lump sum, reducing your expensesand seeking a new, regular income source. Managing or paying down debt should be a priority.   Without careful planning, your money could be quickly depleted.   Investing in income-generating property, a business or dividend paying stocks or a judicious mixture of mutual funds are some of the options to consider. Some people take the opportunity to learn a new skill and re-enter the job market.

Have a financial plan

But the immediate priority would be to prepare a financial plan. Alternatively, a financial advisor, who is an expert in this field such as our Advisory Services team with a focus on wealth management, can help enhance the performance of an investment portfolio and identify ways for you to continue to save and invest effectively and generate wealth.

Consider developing a strategy to generate additional sources of income. Learn a new marketable skill in your spare time, consider opportunities for opening that small business you always wanted to and seek out investment opportunities.  A downturn is one way to test your skills and the ability to leverage your talent in a challenged economy is sure sign that you are thinking on your feet.

Think Mutual Funds

No matter your status and no matter how prolonged the downturn is, mutual funds with their equity and fixed income investments will enable anyone to build a strong investment portfolio. Such asset class diversification would allow you to limit you risks by reducing the effect of a possible decline in the value of one any asset class or security, so if one asset class or security underperforms the others can offset the impact. A downturn could mean allocating income between savings and different categories of expenditure and debt repayment but remember – decisionsshould be based completely upon the investment objective and risk tolerance and not based on emotion.